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A Unified Theory of VC Suckage

March 2005

A couple months ago I got an email from a recruiter asking if I was interested in being a "technologist in residence" at a new venture capital fund. I think the idea was to play Karl Rove to the VCs' George Bush.

When people hurt themselves lifting heavy things, it's usually because they try to lift with their back. The right way to lift heavy things is to let your legs do the work. Inexperienced founders make the same mistake when trying to convince investors. They try to convince with their pitch. Most would be better off if they let their startup do the work—if they started by understanding why their startup is worth investing in, then simply explained this well to investors.

Most startups that raise money do it more than once. A typical trajectory might be (1) to get started with a few tens of thousands from something like Y Combinator or individual angels, then (2) raise a few hundred thousand to a few million to build the company, and then (3) once the company is clearly succeeding, raise one or more later rounds to accelerate growth.

In the next few years, venture capital funds will find themselves squeezed from four directions. They're already stuck with a seller's market, because of the huge amounts they raised at the end of the Bubble and still haven't invested. This by itself is not the end of the world. In fact, it's just a more extreme version of the norm in the VC business: too much money chasing too few deals.

Yesterday Fred Wilson published a remarkable post about missing Airbnb. VCs miss good startups all the time, but it's extraordinarily rare for one to talk about it publicly till long afterward. So that post is further evidence what a rare bird Fred is. He's probably the nicest VC I know.

The biggest component in most investors' opinion of you is the opinion of other investors. Which is of course a recipe for exponential growth. When one investor wants to invest in you, that makes other investors want to, which makes others want to, and so on.